On the Street -- PepsiCo Buys Coconut Water Business

August 15/Business Monitor International Ltd. (BMI) -- Soft drink giant PepsiCo has announced the acquisition of Brazilian coconut water producer Amacoco Nordeste and Amacoco Sudeste (Amacoco) for an undisclosed fee. The move increases PepsiCo's exposure to the attractive Brazilian soft drinks sector, which beyond 2009 is expected to register rapid growth and can also be seen as an attempt to diversify into healthier soft drink varieties, with the possibility of PepsiCo now focusing on the coconut water category in other markets, including Europe and North America.

Amacoco is Brazil's leading producer of coconut water, making the brands Kero Coco and Trop Coco that together account for the majority of packaged coconut water sales. PepsiCo has said it will build on Amacoco's existing network of independent distribution while utilizing the strength of its local distribution system to expand sales across Brazil, as well as other markets worldwide. The firm also suggested that the combination of Amacoco's expertise in coconut water with its own brand portfolio and research and development capabilities creates the potential for very exciting product innovation.

Coconut water is renowned for its health properties and is often marketed as a sports drink because of its high potassium and mineral content. Combined with its natural credentials, these factors make coconut water a category with huge potential in developed markets, particularly with the backing of a major multinational such as PepsiCo, which has existing expertise in the sports drink segment with its extremely successful Gatorade brand.

On the domestic front, the Brazilian soft drink market is large but relatively immature, making it the ideal target for major soft drink multinationals. Unlike in most developed regions, consumption of high-margin carbonated soft drinks has continued to rise rapidly over the last five years. However, despite the current buoyancy of the carbonated sectors, the trend toward healthier soft drinks and bottled water in mature markets has influenced strategy in the region with both The Coca-Cola Company (TCCC) and PepsiCo keen to build a diversified portfolio. As another example of this, in 2008 TCCC sealed the acquisition Brazil's leading maker of ready-to-drink teas Leão Junior.

While ready-to-drink tea and coconut water represent only a small fraction of the total soft drinks market, these kinds of acquisitions suggest that both TCCC and PepsiCo believe it is only a matter of time before these countries follow the lead of the more mature markets and therefore wish to put themselves in the strongest possible position to maintain their market share when this changeover occurs.  

From the August 17, 2009, Prepared Foods E-dition